Government Position Sizing Errors
I just got asked an interesting question that I've never had before or even thought about. It was, "Could you please explain some position sizing errors of the U.S. government."
To the best of my knowledge, the government doesn't trade. If it did, it would be in trouble because I'm sure it doesn't understand position sizing.
But I think you might say that most of the errors that our government makes in terms of the budget and debt might be a position sizing error. (HERE I'M REALLY STRETCHING THINGS). For example, instead of making changes to reduce risk, it makes changes that makes the risk bigger but less obvious. And I'll give a few examples.
To hide the debt, the government got social security to buy the debt. So social security looks like a big fund that holds t-bonds. But instead, its just a way to account for about half of our debt (oh, it's in social security).
Each president looks for ways to make himself look better. Clinton's big coup was the Roth IRA. They came up with an idea that wasn't tax deferred, but everything you earned once you establish it was tax free. That was more attractive that the current way, so massive amounts of money were transferred from regular IRAs into Roth IRAs. The government got a huge windfall of money and Clinton looked like a genius for balancing the budget. Instead, he got current revenue at the expense of future revenue. And it all continues to make the overall situation worse and worse.
Best I can do on a complex subject.
Comments
Why not write a few things about marriage and position sizing on your books?
Close to 50% of marriages don't work yet people bias themselves into thinking they will stay together forever and end up losing huge sums of their hard earned money.
It's a delicate subject because people don't like to see the hard reality that the vast majority of marriages dont work(the 50 percent statistic doenst account for misareble marriages that just won't end) and monetary considerations should be part of the decision in my opinion
Posted by: Fernando | September 13, 2006 02:20 PM
That would be an interesting topic.
I took a sociology course in university and I remember examining predicting factors of divorce (ie, some people were more likely to divorce than others). There were six factors, though I can only remember 3.
1. Getting married fairly young.
2. Disapproval of marriage by friends and family
3. Both people were not in their first marriage (ie, people who divorced and remarried were more likely to get divorced later on).
4. Not knowing each other very long prior to getting married (this sounds familiar, I think this was one point).
Perhaps a potential setup could be avoiding those criteria, now what would be entry and exit criteria? How about position sizing? Perhaps a pre-nuptial agreement fits into there. :P
Posted by: Terry | September 14, 2006 01:51 AM
I think van advice would be to have a 0 position sizing on a lot of the cases, people get married too soon for all kinds of reasons(mostly, emotional biases, not to say emotions shouldn't be a major part of the decision, it should, but it can't be the only guide in my opinion)
Posted by: Fernando | September 14, 2006 08:48 PM